FTC: Big Grocers Exploited Pandemic Supply Chain Disruptions

The Federal Trade Commission discovered in a recent report that major players in the food market exacerbated the adverse effects of grocery supply chain disruptions during the pandemic. As highlighted in the report, these disruptions led to elevated grocery prices and product shortages impacting consumers.

The report emphasizes that consumers continue to bear the brunt of price hikes caused by the pandemic. Large grocery retailers took advantage of rising costs to further increase prices and enhance their profits, which remain high today.

FTC Chair Lina M. Khan noted the severe impact that supply chain shocks have on consumers. “The FTC’s report examining U.S. grocery supply chains finds that dominant firms used this moment to come out ahead at the expense of their competitors and the communities they serve.”

For its part, the National Grocers Association expressed satisfaction with the findings of the FTC report. The investigation confirmed NGA’s assertions that large players in the U.S. supermarket sector took advantage of supply chain disruptions during the Covid era to cement their dominance in the grocery market in a way that exacerbated shortages for consumers and inflated grocery prices.

According to the FTC report, not all retailers, wholesalers, or producers were impacted equally by supply chain disruptions. Smaller grocery retailers faced more challenges with product availability than larger firms during supply chain disruptions. Some larger firms managed to safeguard their product supplies more effectively, creating an uneven playing field in the market.

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In response to the pandemic, some larger firms have considered acquiring manufacturing suppliers, potentially increasing supply chain concentration. The report highlights how bottlenecks in supply chains can lead to significant shocks, favoring major firms.

“This study confirms what independent grocers and their customers experience firsthand: dominant national chains or so-called “power buyers” abuse their immense economic power to the detriment of competition and American consumers. In communities nationwide, independent grocers strive to compete on price, quality, service, convenience, and product range. However, decades of lax antitrust enforcement enable grocery power buyers to coercively squeeze suppliers to comply with their trade demands, unfairly disadvantaging smaller competitors,” said NGA President and CEO Greg Ferrara.

The FTC based its findings on orders issued to Walmart Inc., Amazon.com, Inc., Kroger Co., C&S Wholesale Grocers, Inc., and others under Section 6(b) of the FTC Act. Publicly available data on industry costs and revenues also influenced the report’s insights.

Competitive Impacts of Supply Chain Disruptions

The investigation shows a significant increase in grocery retailer profits, surpassing levels seen in previous years. This surge can be attributed to large purchasers pressuring suppliers to prioritize them over smaller competitors, thus giving them a competitive advantage.

As a result, product availability and customer attraction have been significantly impacted.

Amid the pandemic, excessive consolidation in the retail sector poses risks to supply chains. To counter this, some firms have opted to diversify their supplier base or even consider acquiring manufacturing capacity to steer clear of concentrated markets. Moreover, manufacturers’ promotional spending on scarce items has observed a noticeable downward trend.

The report warns, however, that moves by larger customers to buy one of the few remaining market participants rather than building that capability from scratch could leave the remaining buyers, notably smaller competing firms, even worse off.

Companies relying on traditional grocery retail models faced challenges due to higher prices, while those following an “Everyday Low Price” strategy were less affected by the reduction in promotional spending.

Therefore, the impact of reduced promotional spending varied across different retail strategies. The pandemic highlighted the importance of supply chain diversification and pricing strategies in mitigating risks and ensuring resilience in uncertain market conditions.

“By relentlessly optimizing for leanness in our supply chain, businesses chose again and again short-term savings over our long-term resilience. In 2020, we saw the profound costs of these choices. This study shows many of the severe impacts that supply shocks had on this brittle, ‘efficient’ system. Widespread, substantial, sustained shortages, sometimes of critical goods that American families relied upon,” stated FTC Commissioner Rebecca Kelly Slaughter, regarding the FTC Staff Report, Feeding America in a Time of Crisis.